Requireu: la. Compute the average rate of return for each investment. If required, round your answer to one decimal place. Average Rate of Return % Front-End Loader Greenhouse the nearest do
Requireu: la. Compute the average rate of return for each investment. If required, round your answer to one decimal place. Average Rate of Return % Front-End Loader Greenhouse the nearest do
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:0.792
0.683
0.636
0.572
0.482
0.747
0.621
0.567
0.497
0.402
0.705
0.564
0.507
0.432
0.335
0.665
0.513
0.452
0.376
0.279
8.
0.627
0.467
0.404
0.327
0.233
9.
0.592
0.424
0.361
0.284
0.194
10
0.558
0.386
0.322
0.247
0.162
Required:
1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place.
Average Rate of Return
Front-End Loader
Greenhouse
1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, round to the nearest dollar. If
required, use the minus sign to indicate a negative net present value.
Front-End Loader
Greenhouse
Present value of net cash flow
Amount to be invested
24
Net present value
2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments.
-69
69
-64
64
4,
5 6 7
Transcribed Image Text:Average Rate of Return Method, Net Present Value Method, and Analysis for a service company
The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating income and net cash
flows from each investment are as follows:
Front-End Loader
Greenhouse
Operating
Net Cash
Operating
Net Cash
Year
Income
Flow
Income
Flow
1
$32,300
$103,000
$68,000
$165,000
32,300
103,000
52,000
139,000
32,300
103,000
26,000
98,000
4.
32,300
103,000
11,000
67,000
32,300
103,000
4,500
46,000
Total
$161,500
$515,000
$161,500
$515,000
Each project requires an investment of $380,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected
a rate of 10% for purposes of the net present value analysis.
Present Value of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
0.943
0.909
0.893
0.870
0.833
0.890
0.826
0.797
0.756
0.694
0.840
0.751
0.712
0.658
0.579
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